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What is a 401k plan and how does it work?
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2nd Nov 2009 by Mark P. Cussen, CFP, CMFC
A 401(k) plan is type of qualified plan that allows employees of a company to defer a certain amount of money out of their paychecks into a retirement savings account. The money in the account is then invested in one or more of the various alternatives offered within the plan. These alternatives differ from one plan to another. Employers also often match their employee contributions into these plans, thus greatly boosting the return on investments that employees reap over time. The money in these plans grows tax-deferred until retirement, when it is taxed as ordinary income. Most employees roll their plan balances over into IRAs. They can also take out loans from their plan balances if the plan charter permits it.
A 401(k) plan is type of qualified plan that allows employees of a company to defer a certain amount of money out of their paychecks into a retirement savings account. The money in the account is then invested in one or more of the various alternatives offered within the plan. These alternatives differ from one plan to another. Employers also often match their employee contributions into these plans, thus greatly boosting the return on investments that employees reap over time. The money in these plans grows tax-deferred until retirement, when it is taxed as ordinary income. Most employees roll their plan balances over into IRAs. They can also take out loans from their plan balances if the plan charter permits it.
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20th Oct 2009 In Retirement
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